This may not be the gold rally you have been waiting for - Paul Walker

The GFMS CEO does not believe this is the rally that will sustain gold above $1000 an ounce.

Netherlands - 

The recent spike in the gold price to around the $990 an ounce range is unlikely to lead to a sustained rally above the psychologically significant $1000 an ounce level. 

This is the view of GFMS CEO, Paul Walker. Rather, he believes the jump is the result of "a few fairly significant lumpy transactions" that have gone through the market at a time when he, and his colleagues at GFMS maintain, there has been a degree of illiquidity.

Speaking to Mineweb, Walker said that although gold still has some upside potential, the current jump if anything, represents "a little more downside risk in the short term".

Over the longer term, however, Walker is decidedly more positive. Firstly, while he brushes aside the view that the recent encouragement by the Chinese government to its citizens to buy gold had anything to do with the recent spike, he does think demand from the Asia superpower is still a major factor. 

"If you have a look at GFMS data on China, it's been the one outstanding growth market throughout this bull rally. It's outperformed every other gold market both in value and, most importantly, quantity terms from the perspective of supply and demand balances in this market. 

"There is no doubt that growth in China, ongoing growth in broader-based Chinese consumption from investors, through jewellery, through potentially the People's Bank or savings; that's going to be a positive for gold. 

A second major factor GFMS is keeping a watch on when it comes to the long term view is the extent of central bank selling. The research house maintains that net central bank selling is going to decline over the next 10 to 15 years, which should prove supportive of a higher gold price. 

But, Walker says, while these supports are important, the major triggers for a significantly higher (or lower) gold price are going to be found in the private sector. 

"In our view, a significant amount of what we've seen over the last week or two is privately based. And the future of the gold price, certainly on a short-term basis, is going to be dictated by what the private sector does as much as what the official sector sides do. 

"As an example of this Walker says hedge fund manager John Paulson's strong move into gold could well have had an effect. 

"There's no doubt that the gurus in the market will definitely bring people along with them. And, as you say, John Paulson's made a lot of his stake in AngloGold; very large positions in ETFs. And I think a lot of people will be looking at somebody who's got one of the largest hedge funds in the world, saying maybe this guy knows something that we don't know and, given that he's made tremendously good calls in the recent past, maybe we should just in a sense trend-follow him and get on the back of this.

"Of course, he's been on the record as saying that his view is the long-term threat of inflation. Wealth preservation is underpinning that kind of strategy, and that remains to be seen. But there's no doubt that the inflationary argument has been gathering pace in the market. More importantly, the expectations of inflation are a factor behind some of the sort of trend higher in gold prices and will continue to dictate the short-term dynamic of the gold price." 

Walker does however remain sceptical of the inflation argument as previous cycles haven't always stuck to the theory. 

"In the 1980s inflation was running high, gold prices went down. And conversely, if you have a look at the very low rate of inflation we've had in the last seven or eight years, that's when we've had the bull rally. Without getting into too many technicalities, I think that's because we have some rather curious ways of measuring inflation rather than the actual fundamental issue underlying price trends, and housing would be just one example of that."

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responses to this article

Future...Sept 09 ok... Just wait and see what happens...Your going to wish you were long on Gold or Silver. by Mike on September 07 2009, 06:54 Find this comment inappropriate? Report it

gold price higher in Pakistan there is a lot of gold higher price in Pakistan, 995$ , over 30500 rate per tola. the people of pakistani are not byuing because there is poor people, 920$ then people of pakistani buy for weding for eid gifts. then ever not buy . The gold . .more jewllers have no coustomer because of rate high, Jewellers say that if gold not fall back 920$ then they will close there shops. . .less by waqar on September 07 2009, 07:00 Find this comment inappropriate? Report it

Gold Price Is Higher In Pakistan There is a lot of gold higher price in Pakistan, 995$ , over 30500 rate per tola. the people of pakistani are not byuing because there is poor people, 920$ then people of pakistani buy for weding for eid gifts. then ever not buy . The gold . .more jewllers have no coustomer because of rate high, Jewellers say that if gold not fall back 920$ then they will close there shops. . .less by bewafa_zindi@hotmail.com on September 07 2009, 07:05 Find this comment inappropriate? Report it

Gold Price Is Higher In Pakistan There is a lot of gold higher price in Pakistan, 995$ , over 30500 rate per tola. the people of pakistani are not byuing because there is poor people, 920$ then people of pakistani buy for weding for eid gifts. then ever not buy . The gold . .more jewllers have no coustomer because of rate high, Jewellers say that if gold not fall back 920$ then they will close there shops. . .less by bewafa_zindgi@hotmail.com on September 07 2009, 07:05 Find this comment inappropriate? Report it

Paul Walker Walker is so apropo, always a naysayer somewhere. He's obviously holding a bunch of losing equities! by Billy West on September 07 2009, 07:08 Find this comment inappropriate? Report it

Chinese accumulation of PM The proactive promotion of the Chinese government to encourage its citizens to purchase Gold and silver, will generate an enormous physical demand. Even if a fraction of 1.3 billion enter the PM market the price of physical metals will soar! by jack on September 07 2009, 07:14 Find this comment inappropriate? Report it

Mike, I'm long on both young son! There are only certain ones who know, huh? by Billy West on September 07 2009, 07:20 Find this comment inappropriate? Report it

Gold Price You mentioned high inflation and low gold prices in the 1980's. Perhaps one should keep in mind how very high interest rates were during that period, and that might help explain why gold prices were low. Nowadays our phony economy . .more would crash in minutes if interest rates went above 1.5% let alone the 15% of the 1980's. . .less by Dave on September 07 2009, 14:25 Find this comment inappropriate? Report it

PM pessimist Why does it seem there are always people saying we need a pullback before gold will go up at sometime in the future? It beginning to sound like a broken record. by Mike on September 07 2009, 18:52 Find this comment inappropriate? Report it

gold the safest & best bet is physical gold or even better silver. It takes the power away from the corupt and gives you some leverage in some bad times ahead. The equity market looks great but thats just printed money. He who thinks were at end of . .more road for G & S are in for shock of life time. Your portfolio could read 500x higher a year from now and you'll be wishing you bought gold & silver . .less by Marty Silver on September 08 2009, 14:10 Find this comment inappropriate? Report it

Gold/Silver Miners I've noticed some mining companies increasing by 4%-10% while the physical metal spot is about 1-3%. Which is a good solid mining company to hold that pays solid dividends? I do not trust GLD and SLV. by Silver2TheMoon on September 08 2009, 21:04 Find this comment inappropriate? Report it

solid mining companies to hold Goldcorp, Agnico eagle are both very solid . They both pay a dividend, but that is not why you buy gold stocks. You buy them to leverage the expected increase in the price of gold. by Rob on September 10 2009, 14:07 Find this comment inappropriate? Report it

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